Bankruptcy
What is it?
Bankruptcy is a formal insolvency procedure used to deal with the affairs of individuals who have been legally declared to have liabilities which exceed their assets or to be unable to pay the debts. This legal declaration ("bankruptcy order") is made by the courts and can be obtained by any creditor owed over £750 or by the individual concerned, applying to court.
Who is it for?
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The Process
If a bankruptcy order is made against you, your affairs will be dealt with by a trustee in bankruptcy and, subject to certain exemptions, all of your assets will be sold to pay your creditors, as far as possible. Assets which you should be allowed to retain include:
- Furniture, bedding, clothing and household equipment for basic domestic needs
- Items you require to continue a trade
- A modest car or van
- Money in a pension fund
The trustee would, therefore, seek to sell your home or at least realise your interest in it, provided its value is in excess of any mortgages on the property. He would also seek to realise any shares, investments, antiques and bank or building society accounts.
Unless you have previously been bankrupt, your bankruptcy will usually last no more than 12 months but you will be subject to a number of restrictions during this time. Your trustee will also advertise details of your bankruptcy in a local paper and inform a variety of interested parties of your bankruptcy.
Any assets you receive whilst bankrupt, such as a lottery win or inheritance, will be used to pay your creditors and, if you have any surplus income, you will be expected to make payments to your creditors for up to 3 years from the date of the bankruptcy order.
Bankruptcy does nevertheless offer the opportunity of a fresh start as, in most cases, it prevents your creditors from making any further claims against you.
Advantages
- Relative peace of mind and conclusion to outstanding liabilities
- You will be automatically discharged from bankruptcy after no more than one year, unless you have previously been made bankrupt, have failed to cooperate with your trustee or you have had a bankruptcy restrictions order made against you
- The court has the power to stay all legal proceedings against you
- The level of any income contributions may be lower than those required in an IVA
Disadvantages
- If you decide to declare yourself bankrupt you will be asked to pay a deposit of £345 towards the costs of the Official Receiver and a court fee of £150. You will have to attend at court to file your own bankruptcy petition and complete a statement of your affairs. Creditors can also issue bankruptcy petitions but in these cases they will pay the deposit and court fee
- Your ability to obtain credit whilst bankrupt will be restricted. If you apply for credit of £500 or more, including goods subject to hire purchase or conditional sale agreements, you must tell the lender you are bankrupt. It may also be difficult to get credit after your discharge as details of the bankruptcy will stay on your credit file for six years from the date of the bankruptcy order
- You may encounter difficulties in operating a bank account whilst bankrupt
- With some exceptions, you will lose control of your assets as your interest in them will automatically transfer to ("vest in") your trustee in bankruptcy. This includes any interest in a property, such as your home. Any property transferred to an associated party in the five year period prior to the presentation of a bankruptcy petition, or payments made to "associates" within two years of the presentation of a bankruptcy petition, may also be recovered as an asset in the bankruptcy estate. You also have a duty to provide an inventory of your assets and deliver them up your to your trustee, as required
- You must co-operate with the court, Official Receiver and your trustee in bankruptcy. In particular you must notify the trustee within 21 days of any windfalls or increases in income, and attend any private or public examinations before the court, if required by the trustee
- You may be required to make monthly contributions from any surplus income to your trustee, for the benefit of creditors, for up to 36 months from the date of the bankruptcy order
- You will automatically be disqualified from acting as a director, or directly or indirectly taking part in the promotion, formation or management of any company, except with leave of the court. Whilst bankrupt certain professional bodies may also prevent you from practicing. You may not hold certain public offices or act as a trustee of a charity or pension fund
- If the Official Receiver believes you have been dishonest prior to or during bankruptcy, or that you are to blame for your financial position, he may apply to court for a bankruptcy restrictions order. If the court agrees, it can make an order against you for between 2 and 15 years, which means that you will continue to be subject to bankruptcy restrictions
- The bankruptcy order is advertised in the London Gazette and a local newspaper. Your details will also be entered on the Individual Insolvency Register and the appointment of a trustee may also be advertised in a local newspaper
Other Options available
Individual voluntary arrangement ("IVA") , Debt Management Plan , Informal Arrangement
Call us on 0800 195 4585 if you are considering 'bankruptcy', as there may be some alternative solutions to your problem.
